Watch Out Below; Philippines Flirting With Bear Market

The party appears to be over for Philippines stocks, which had been the darling of emerging-market investors earlier in the year, with the benchmark index briefly dipping into bear market territory early Tuesday.

The Philippines PSEi composite had surged 27.4% to this year’s high on May 15 driven by upgrades by rating companies and the government’s drive to boost economist growth. That made it the second-best performing Asian market after Japan, and easily beating neighbors Indonesia and Thailand that had also done well.

But in a sharp reversal, the Philippines market has now dropped 19.7% from its high amid the rout in global equities within the past few weeks. The trigger has been signs the Federal Reserve may cut back on its bond buying program that had flushed the world economy with excess cash. That’s prompted global investors to withdraw money from emerging markets and send it back to the U.S., where the economy is starting to show signs of growth.

The current market selloff “is all technical, driven by overseas developments,” April Lee-Tan, research head at online stockbroker COL Financial, said. “I think the reason is a bit shallow–the scaling back of spending stimulus by the U.S., which is actually a positive development because it means the U.S. economy is improving.”

“From a short-term perspective, we’re really expensive and nobody denies that. The market was pricey and foreign investors now have another market to look at as the U.S. economy is improving,” she added.

The Philippines PSEi Composite dropped below 5922.92 in early trading Tuesday, falling over 20% from its year-to-date intraday high and putting the index in bear market territory on an intraday basis. The index has since recovered, and is currently within a whisker of bear market territory, trading at 5951.75 as of 0233 GMT. On a closing basis, a close below 5913.76–20% below the index’s year-to-date closing high–would see the index officially enter a bear market.

While most regional markets have suffered from concerns about a tapering of the Federal Reserve’s asset-purchase program, only Japan’s Nikkei and China’s CSI 300 have entered a bear market so far.

The Philippine PSEi composite isn’t the only Asian index flirting with bear market territory. In China, the Shanghai Composite entered bear market territory on an intraday basis early Tuesday following Monday’s 5.3% decline.